President Trump is in the middle of a growing number of trade disputes. On Sunday, he promised to dramatically raise tariffs on $200 billion in Chinese goods if a trade deal isn’t completed by this Friday.
But while the Trump trade threats over tariffs steal the headlines, the Trump administration will soon have to make a series of decisions about non-tariff barriers to trade. Those include quotas in the new Trump agreement with Canada and Mexico that will supersede NAFTA and a nasty dispute over agreements the U.S. has negotiated to ensure fair competition in international airline flights. In these non-tariff trade cases, the chief debate isn’t over how to convince trading partners to level the playing field but how to enforce existing agreements. As Douglas Holtz-Eakin, a former director of the Congressional Budget Office, notes, “unless trade agreements are enforced, it does not matter what philosophy drives their negotiation.”
International airline travel has exploded in recent years, making enforcement of the dozens of agreements under the Open Skies Act ever more important. Open Skies regulates which airlines get to enter another country’s territory. The goal is open entry, unless a government-subsidized carrier is using its artificial advantage to unfairly compete with private carriers.
Such is the case with Qatar Airways, which is owned by the fossil-fuel-rich government of Qatar and has spent billions to become a major player in international aviation. Qatar Airways is now so big that the U.S. and Qatar signed an agreement in January 2018 to limit Qatar’s ability to fly directly into the U.S. from European cities. These so-called fifth-freedom flights are carefully negotiated to avoid unfair competition.
But Qatar soon made it clear that it was reinterpreting the agreement in such a way as to make it meaningless. It bought a 49 percent stake in a failing carrier called Air Italy, which previously had flown only regionally in Europe along with a couple of seasonal flights to the U.S. Two days after Qatar Airways bought a stake in it, Air Italy began an expansion that now has it making nonstop flights from Milan, Italy, to New York, Miami, Los Angeles, and San Francisco. Its bargain rates are clearly designed to poach passengers from U.S. carriers, using its Qatar-government subsidies to make up any losses.
Qatar Airways didn’t make much of an effort to hide the fact that Air Italy is basically a front for its Qatari owners. Air Italy’s extensive operating losses are covered by Qatar, its top executives are almost all former executives at Qatar Airways, and even Air Italy’s crew uniforms are almost identical to those worn by employees of Qatar Airways.
A range of U.S. officials, from Democratic senator Bob Menendez of New Jersey to Republican senator Ted Cruz of Texas, have called foul on this subterfuge and complained to U.S. Secretary of State Mike Pompeo. At a recent Senate hearing, Pompeo responded to such concerns by reiterating his support for the Open Skies Act: “The U.S. government sees what’s going on, and we’re working to put this agreement — we think it was a good agreement, and we’re trying to ensure it’s enforced.”
Open Skies agreements not only promote free-market principles, but they give the U.S. aviation industry the opportunity to compete around the world. The distortions that government-owned carriers in the Persian Gulf are creating in the airline market threaten a wide range of other airline agreements and make a mockery of financial transparency.
As President Trump has decided which trade fights to pick, he has sometimes made mistakes or exaggerated the dangers. But when it comes to the Open Skies agreement with Qatar, the U.S. has an obligation to make sure it is fully enforced. Anything else would make a mockery of the very idea of a trade agreement working in behalf of the American people.